There is a lot to think about when moving to Portugal. It’s hard enough moving to a different place in your home country, but relocating abroad often involves extra matters to be organised and is simpler to put some on the back burner for a time when life has settled down.
One issue that should be dealt with before it is too late, is planning the distribution of your estate. Fate can deal a sudden blow and you cannot see into the future. Delaying action could well give your spouse and family more heartache than they would ever want if you suffered an unforeseen demise – and shocking inheritance tax dues that can smash all those wonderful dreams of retirement in Portugal.
Some Britons who retire to Portugal may have already made a UK will and believe that this is sufficient. However, it is advisable for a non-Portuguese national to make a Portuguese will in relation to their Portuguese assets.
British people also need to take UK inheritance tax into account. If you remain a UK domicile then inheritance tax is due in the UK on your worldwide estate.
If you shed UK domicile then only your UK assets remain liable to UK inheritance tax. The rate, until April 6 this year, is a massive 40 per cent on all assets over the UK tax free allowance of 285,000 pounds sterling, due to rise to 300,000 pounds sterling for 2007/08. Spouses (providing they have the same domicile) and legal civil partners are exempt.
A solution to the inheritance tax problem lies with offshore trusts. More and more expatriates are moving their assets into these tax efficient structures.
An offshore discretionary trust has various advantages, one being that assets in a trust are not subject to the lengthy and costly business of obtaining probate. A trust can provide confidentiality, because it is a private legal agreement between you and the trustees. Assets in a trust can roll down through the generations tax free, protecting your wealth for your descendants.
A trust can protect you from unwelcome creditors and bankruptcy and can ensure that your money is passed intact to the heirs of your choice, rather than surrendering almost half to the taxman.
Other advantages with an offshore discretionary trust are that you can add and remove beneficiaries and there is no need to decide straight away how your estate should be distributed. If the time comes that you return to the UK to live, your assets can remain in trust and outside of your estate for inheritance tax purposes.
An offshore discretionary trust can be very useful in today’s modern world, when second marriages can throw up problems and arguments where heirs are concerned. A trust can be written so that a current spouse and surviving widow or widower will receive the benefits of the trust and, on their death, pass onto your blood children. The last thing a deceased person would probably wish is for their hard earn money to pass onto a second spouse’s offspring, particularly if they didn’t get on with them. Another nightmare would be that that the offspring’s inappropriate spouses could eventually inherit your money.
If a husband left all his assets to his wife, there is the possibility that she could remarry and his wealth finish up by being inherited by the second husband’s blood children. There are various permutations to this scenario, which are best avoided from the outset.
If one of your children got into serious financial difficulties, the assets can be shielded from creditors, while your son or daughter remained a potential beneficiary. The trust can be written to protect a child with no financial know-how and who is likely to spend a lump sum of money unwisely.
Trustees can be instructed on how to use the assets in the trust. If a beneficiary of the trust becomes ill to a state